A new financial institution to be born?

The new Shanghai Cooperation Organisation development bank will be the latest addition to China-sponsored new financial institutions.

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At the September 2025 meeting of the Shanghai Cooperation Organisation (SCO) Chinese President Xi Jinping announced, alongside the Global Governance Initiative, the formation of a new SCO development bank. This follows the establishment of the Asian Infrastructure Investment Bank (AIIB) in 2014 and the New Development Bank (“BRICS bank”) in 2015. Why so many new financial institutions?

These are slightly different types of bank. The AIIB is a multilateral development bank, structured very much like other MDBs, such as the World Bank and Asian Development Bank. Although it is based in Beijing and China is the largest shareholder, the AIIB has many other national shareholders, including the UK, though not the US, which opposed membership by the UK and other allies. Japan, responding to US urging, also did not join. It is not a Chinese bank.

The creation and successful operation of the AIIB is intended as proof that China can set up a useful and well governed international institution, evidence of its ability to be a responsible member of the international system. It might also reflect Chinese exasperation (along with India) with the continued unfairness of the shareholder and voting structure of both the World Bank and IMF, whose power structures largely reflect the world economy as it was 50 years ago, rather than today.

The NDB has only five shareholders, namely the original BRICS members: Brazil, Russia, India, China and South Africa. Quite what is the purpose of the BRICS itself remains a bit unclear. The member states broadly agree on wanting a more inclusive and less western-dominated international system. But beyond that, their interests are not particularly aligned. Some are commodity exporters, others are importers. China and India have fairly obvious regional rivalries and border disputes that have periodically burst into violence. the NDB, based in Shanghai, lends to its member nations. Its credit rating is limited by that of its financially weakest member, which has typically been South Africa.

The BRICS organisation is attracting more members, perhaps as a hedge against the gradual breakdown of the UN-based system of global governance. So the NDB may yet flourish into something more important.

What about the SCO development bank? The SCO membership overlaps a bit with the BRICS and represents another way that China wishes to rally support for innovation in global political and economic governance. President Xi described the purpose of the new bank as “to provide stronger support for the security and economic cooperation of member states.” Its geographic area obviously overlaps with the that of the AIIB and with China’s Belt and Road Initiative. Some of the member countries, including China itself, do not obviously lack financial resources, but others will no doubt welcome additional investment.

Given the need for further investment in developing Asia, especially in energy infrastructure, the more financial resources available the better. But there is obviously a deeper political and diplomatic aspect to the creation of these banks. Setting up a bank is relatively straightforward and something China knows a lot about. A bank, like any international organisation, provides scope for patronage and political appointments (most notably the longstanding but unwritten rule that the World Bank is always headed by an American, and the IMF by a European).

One might also see the creation of multiple, overlapping institutions as similar in spirit to Chinese industrial policy, which having picked a goal, such as electric vehicle dominance, encourages a lot of different competing firms (over 100 reportedly). The Chinese EV industry can be expected to consolidate at some point, whereas international financial institutions tend to go on indefinitely (see for example this post about the EBRD).

The bigger picture, in my view, is that the system of US-created and dominated international institutions is in decline, largely owing to the failure of that system to accommodate the interests of rising economies such as China and India, and more recently because of a shift against those institutions by the US itself. The US has always been ambivalent about involvement in the wider global economy: US President Woodrow Wilson pushed for the creation of the League of Nations in 1920, but the Congress refused to ratify the treaty of US membership; many Americans today remain sceptical of, or even hostile to, the “globalists” who they see as entangling the US politically and economically in the troubles of the rest of the world.

So we’re in a period of change, involving a shift of power back to nation states. In the vacuum of international power that creates, it’s not surprising that China and other states want to build new institutions that help them to maintain or grow their international influence. Nobody can be sure what the international system will look like in a few years, so a lot of countries will be hedging their bets by taking part in a range of initiative, hoping that one or more of them will provide protection from what looks like a growing storm.